Your
question has oversimplified the problem.Bonds are subject to default risk—the possibility that the issuer will
fail to meet interest or principal payment obligations. On this measure, yes,
Treasury bonds are your safest choice.

However,
bonds are also subject to interest rate risk. The value of any bond, on paper,
will fall as interest rates rise. Interest rates today have nowhere to go but
up. If the bond is held to maturity, a paper loss is of no consequence to the
investor.But if the bond must be sold
early, the investor will receive less than a return of his original investment.

How
big a loss is possible?One example
occurred when Fed Chairman Paul Volcker was fighting inflation by dramatically
boosting interest rates.From June 30,
1979, to September 30, 1981, the 10-year Treasury bond lost 10.8% of its value,
according to The Wall Street Journal.Inflation is not expected to be a problem
anytime soon, however. More recently, as the economy recovered under President
Clinton, from October 31, 1993, to November 30, 1994, the 10-year Treasury fell
10.6%.

Economic
recovery is something we all hope for, yet for bond investors there could be
hidden downsides.Today’s low interest
rate environment will have to come to an end sometime.

Investing
in bonds or stocks today can be daunting.To learn more about our capabilities in this area, we invite you to come
in to speak with our investment professionals.

Do you have a question concerning
wealth management or trusts? Send your inquiry to tormey@pgbank.com.